The report provides initial guidance that will prove informative to maritime community as they navigate the complexities and uncertainties of the Net Zero Framework.

Analysis underpinning the report attempts to translate the elements of the framework that have been clarified across different ship specifications and fuel combinations in order to assess the relative competitiveness of those options, and to test for sensitivities against some of the remaining uncertainties—whether related to further policy development, techno-economic fundamentals or commercial decision-making processes. Given the scope of these uncertainties, this assessment only signals at some potential outcomes, but some important inferences can still be made at this stage.

The chart below show the total cost of operation (TCO) calculated for a range of different ship specifications, illustrating the relative competitiveness of these choices under both the NZF as agreed (on the left) and with an indication of how its reward mechanism will be specified and parameters adjusted over time (on the right). For each of the ship specifications, the actual fuel / energy product mix used to minimise the TCO varies over time, from an evolving mix including fossil fuel, pay to pollute, biogenic fuel, blue fuel or e-fuels (fuels made from renewable electricity)

Total cost of operation, assuming no ZNZ reward mechanism and holding RU / SU prices fixed (left); including a ZNZ reward mechanism and increasing RU / SU prices over time (right)

Shipowner’s Perspective

From the shipowner’s perspective, a near-term outlook which suggests similar levels of competitiveness between different ship specifications (particularly conventional, LNG DF and ammonia DF ships), and significant uncertainties, might encourage shipowners to pursue a range of strategies with multiple ship specifications. However, this study’s analysis shows there is also potential to hedge most of the uncertainties using the optionalities embodied in a single ship technology specification: ammonia DF. Over the short term, this choice benefits from exposure to:

  • Natural gas pathway (low gas price and/or strong SU price enabling competitiveness of blue ammonia)
  • E-fuel pathway (if e-ammonia costs reduce faster than expected)
  • Biofuel pathway (if a competitive drop-in biofuel is available)
  • Fossil fuel and pay to pollute (if there is no revision of RU prices)

Port’s Perspective

The advantage that optionality provides to shipowners could also apply to ports. In the near term, ports may focus on infrastructure investment that builds bunkering capacity for the fuel / energy molecules that will continue to be utilised, even as production pathways evolve over time—for example, oil (fuel oil potentially switching to bio), LNG (fossil LNG potentially switching to bio-LNG), and ammonia (blue potentially switching to e-ammonia). However, over the medium-to-long term, the evolving relative competitiveness of these options means demand is likely to become more focused (although not exclusively) on ammonia

Signals to Fuel Producers

For fuel producers, the analysis indicates that this group receive the least degree of clarity from the IMO NZF. Signals at this stage include:

  • Conventional fossil fuel producers: Conventional marine fuels producers are given a clear initial signal of continued demand for their product and may believe the large existing fleet of conventional ships that will continue to need ‘oil’ will sustain demand out to 2040.
  • LNG producers: These entities are given a strong positive initial signal, but with future uncertainty over whether there will be a rapid contraction of demand or more stable demand through the 2030s.
  • Biogenic fuel producers: This group have perhaps a clearer signal—if they can produce below the current RU2 price thresholds, then there is a strong demand potential, especially for drop-in fuels (conventional oil equivalents).
  • Blue vs e-ammonia producers: Due to the current lack of specification of the reward mechanism, and the uncertainty related to the scale of e-ammonia that could be rewarded by available IMO funds, blue ammonia producers receive a clearer signal from the NZF than e-ammonia producers

Link to the report: Assessing the IMO’s Net Zero Framework